InvestmentsSep 21 2015

Fund Review: JPMorgan Emerging Markets Investment Trust

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This £836m investment trust is managed by Austin Forey, and is a member of the Investment Adviser 100 Club 2015 in the global emerging markets category in spite of what has been a difficult time for investors in these regions.

The manager, who has run the trust since 1994, invests in what he describes as “better than average” companies that are on track to deliver “superior growth” over the long term.

“We like to keep things for a long time and focus on buying stocks that will survive, keep growing, and maintain their competitive position,” he notes.

As a long-term investor, it’s not unusual for the portfolio to be “relatively inactive”, Mr Forey says. “The turnover rate is around 20 per cent and we tend to keep stocks for five years or so.”

That is not to say the manager, who is assisted by the global emerging markets team, has not made changes to the portfolio in the past 12 months. He notes: “Year-to-date portfolio changes include trimming some of our Indian positions as a result of strong market performance. More broadly, we’ve selectively added some healthcare and technology names as well as an Asian financial company.”

But fundamentally Mr Forey invests “from a bottom-up perspective”, although he is “cognisant of the macro environment in which our companies are trying to operate. So while we aren’t primarily focused on top-down factors, it would be naïve to think the macroeconomic environment does not impact our process.”

Ongoing charges on the investment trust are 1.17 per cent.

The investment trust has not escaped the recent volatility in emerging market economies, and performance has dropped off as a result. Data from FE Analytics shows the fund posted a loss of 12.3 per cent in the 12 months to September 10, while its peer group, the AIC Global Emerging Markets Equities sector, recorded an 18.8 per cent loss.

However, its performance is far more impressive over a 10-year period, in which the trust generated a return of 119.6 per cent.

Mr Forey points to a strong first-quarter result in the year to date, followed by a volatile few months. The fund’s positions in China and India have dictated performance, as the two economies continue to diverge.

He says: “Our investment process led us away from a number of Chinese stocks, particularly state-owned companies that tend to be of lower quality and have a number of governance concerns.”

Mr Forey observes that his underweight exposure to China and the resources sector has helped the trust’s performance in the past 12 months, while his portfolio’s overweight positioning to India and the consumer-orientated sectors have done particularly well. He highlights EPAM Systems, Capitec Bank, IndusInd Bank and life insurance company AIA Group as holdings that added to performance during the first seven months of the year to date period. But detractors include Chinese search engine Baidu and Bank Rakyat Indonesia.

So what’s his outlook for an asset class that appears to be in some turmoil?

Mr Forey says: “Emerging markets may finally be approaching a cathartic moment that compels long-term investors to reallocate to the asset class, as valuations approach levels not seen since the major crises of 2008-09 and 1998.”

He is taking advantage of periods of “indiscriminate selling” to add to his highest conviction positions and also to pick up favoured stocks offering “more interesting valuations following the correction”.

He adds: “We believe investors looking to rebalance in favour of emerging markets may be rewarded by waiting for moments of intense selling pressure, like that witnessed in late August, when valuations reached levels that history suggests offer significant upside potential over a one- and three-year basis.”

EXPERT VIEW

Juliet Schooling Latter, director of research, Chelsea Financial Services

This is a larger emerging market offering that is underweight China and overweight India. Its performance has been volatile due, in part but not totally, to gearing. It’s had a discount of around 10 per cent pretty consistently for the past four years or so, but has got back up to 6 per cent on occasion. JPMorgan has a huge team looking at these areas of the world and, at the moment, the trust is at a 12 per cent discount to its net asset value, which suggests some possible upside for investors choosing to get into it now.

Ellie Duncan is deputy features editor at Investment Adviser